Wednesday, November 3, 2010

Ben Bernanke's announcement today of $600 billion of QE 2 (money printing) sparks criticism from many people. Experts from Joseph Stiglitz, the Nobel-winning economist, to Bill Gross, head of the bond-management giant, Pimco, have already predicted it will be either ineffectual or dangerous.

The dollar is in danger of losing 20 percent of its value over the next few years if the Federal Reserve continues unconventional monetary easing, Bill Gross, the manager of the world's largest mutual fund, said on Monday... Reuters

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3. Inflation, as even the Fed will admit, helps some people and hurts others. The idea is that it will help more people than it hurts by forcing investors to buy real assets. The kind of inflation that QE is likely to cause will have an almost entirely damaging impacta on the US. In fact, the devaluation of the dollar and the rise in raw materials prices will hurt every American household and most American businesses; it will benefit Middle East oil producers, Vladimir Putin, Aussie mining companies, and all sorts of people who don’t live in the United States.
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1. It undermines the dollar’s world reserve currency role. That’s why gold keeps going up. If the US were Greece or Ireland, we’d be in front of the International Monetary Fund in sackcloth and ashes right now. But we’re the world’s only superpower, and the central banks of the rest of the world have to hold their reserves in dollars. Why? Because there isn’t enough of anything else (unless the price of gold were to go to $10,000 an ounce, which I doubt) and because they hate each other more than they hate us — at least for the moment. With Obama shrinking America’s strategic footprint and the Fed behaving like the neighbor whose septic tank overflows onto everyone else’s lawn, Washington is testing the world’s patience. It will have consequences.

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Brad DeLong / Grasping Reality with Both Hands:

The Mountain Labored, and Gave Birth to a Mouse — The Federal Reserve says: … Greg Robb: … The five-year note carries an interest rate of 1.17% per year. The Federal Reserve is thus changing the supply of assets by taking onto its own balance sheet... wait for it... wait for it …